The Federal Trade Commission today released staff comments to the Department of Defense on its proposed regulation implementing limitations on terms of credit extended to service members and dependents.

The comments requested by the Department support its proposal to focus the regulation on products that can cause service members the most harm – payday, title, and refund anticipation loans – and to apply the regulation to all types of lenders of these products.

The proposed regulation requires oral and written disclosures, a 36 percent rate cap, and other lending limitations, including prohibitions or restrictions on refinances and renewals by the same creditor, mandatory arbitration, creditor demands for certain notices from borrowers, creditor use of vehicle titles as security, and prepayment penalties or fees. Violators would be subject to criminal prosecution; contracts in violation of the proposed regulation would be void.

The proposed regulation would amend existing Defense Department regulations in order to implement the military lending consumer protections of the John Warner National Defense Authorization Act of Fiscal Year 2007. Generally, these provisions of the Act take effect October 1, 2007, as would the proposed regulation.

As stated in the comments, the FTC staff supports the proposed regulation because it is narrowly tailored to prevent practices that Congress concluded were causing harm to military consumers, and because it preserves the ability of military consumers to seek and obtain other forms of credit.

The Commission vote to authorize the filing of the staff comments with the Department of Defense was 5-0.

The views expressed in the report are those of the staff of the FTC’s Bureau of Consumer Protection, Office of Policy Planning, and Bureau of Economics, and do not necessarily represent the views of the FTC or any individual Commissioner.

Copies of the comments are available from the FTC’s Web site at http://www.ftc.gov and from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint in English or Spanish or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the complaint form at http://www.ftc.gov/ftc/complaint.shtm. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to more than 1,600 civil and criminal law enforcement agencies in the U.S. and abroad.